U.S. Natural Gas Output May Get Boost From Japan Nuclear Crisis

March 23 (Bloomberg) -- The $99 trillion U.S. natural-gas
industry, led by Exxon Mobil Corp. and Chesapeake Energy Corp.,
is prepared for a surge in demand as Japan’s nuclear crisis
shakes confidence in atomic energy, executives said.

Natural gas futures have risen 11 percent since the March
11 record earthquake and tsunami in Japan spurred a round-the-clock battle against a meltdown of nuclear reactors there.
Futures gained as much as 0.5 percent to $4.275 per million
British thermal units on the New York Mercantile Exchange and
were at $4.264 at 11:11 a.m. in Singapore. Nymex gas contracts
for delivery in March 2015 touched $6.083 on March 16. The
contract has since fallen 1.5 percent to $5.99.

Production of the heating and power-plant fuel can be
ramped up within months, thanks to the industry’s ability to
extract gas cheaply from vast shale deposits in North America,
Larry Nichols, executive chairman of Devon Energy Corp., the
third-largest U.S. oil and gas producer, said in an interview.

The U.S. Nuclear Regulatory Commission said March 21 it
will begin a review of domestic nuclear safety after an
earthquake and tsunami overwhelmed the six-reactor Fukushima
Dai-Ichi station of Tokyo Electric Power Co., wrecking its
cooling systems and threatening a meltdown of radioactive fuel.
Even as the crisis eased this week, radiation released from the
damaged plant contaminated food, seawater and drinking water.

The Queen Rules

“Natural gas is queen for a decade, maybe two,” John W.
Rowe, chief executive officer of Exelon Corp., the largest U.S.
nuclear-power generator, said in an interview last week on
Bloomberg’s “Taking Stock” with Pimm Fox. “It gives you a lot
of advantages economically and it allows you to take time and
work out the mix of renewable and nuclear in the future in an
orderly way.”

The prospect of stricter regulation of the industry
prompted Exelon to reconsider $3.65 billion in planned nuclear
spending and NRG Energy Inc., the largest U.S. independent power
producer, to slow work and postpone orders for two 1,365
megawatt reactors planned in Texas.

“We’d reached a point where we had a much higher level of
public confidence and that will be changed by this event,” Rowe
said.

Delayed Licenses

The NRC probably will delay the first new reactor licenses
in a generation beyond year-end as the agency assesses whether
design changes are needed to avert failures similar to those in
Japan, said Michael Worms, a New York-based analyst for BMO
Capital Markets.

“Nuclear, it’s toast,” Thomas D. O’Malley, chairman of
PBF Energy Co. LLC, the private-equity backed oil-refining
partnership, said at an industry conference in San Antonio
yesterday. “Who’s going to sign a permit today? Absolutely no
one after this disaster.”

Ample gas supplies have led to low prices that damped
shares of producers, while raising the appeal of gas as a low-cost fuel for power plants, Rowe said.

“Never in my career have there been so many forecasts that
the price of natural gas will be so low for so long,” Rowe, 65,
said. Any new plants Exelon builds will be fueled by gas, wind
or solar energy, Rowe said.

Losers Gain

Gas producers Southwestern Energy Co. and Cabot Oil & Gas
Corp. led gains among U.S. independent oil and gas producers in
the Standard & Poor’s 500 Index since the earthquake in Japan,
after trailing the index in 2010. Southwestern, based in Houston,
has risen 16 percent to close at $42.03 yesterday, the highest
since June. Cabot, also based in Houston, has risen 15 percent
to $49.29.

Sustained gas prices as high as $6.50 a million British
thermal units may be needed for companies like Devon to return
to gas fields, Nichols said. Devon, like many producers, has
shifted more onshore production to oil and petroleum liquids
over the past two years as oil prices nearly doubled to more
than $100 a barrel.

Japan, the world’s biggest importer of liquefied natural
gas, is increasing demand for the fuel to replace damaged
nuclear capacity. That will have little effect on the U.S. and
Canadian market because North America is neither a big importer
of gas, nor has significant export capacity, Leo P. Mariani, an
Austin, Texas-based analyst for RBC Capital Markets, wrote in a
March 18 note to clients.

Exxon Mobil, the largest U.S. gas producer, along with
Chesapeake and Range Resources Corp., are among the many
companies that would benefit from more power plant demand for
the fuel, Curtis Trimble, an energy analyst at MKM Partners LP
in Houston, said in an interview. Gas production is profitable
for Range at $4 per million British thermal units, CEO John
Pinkerton said in an interview yesterday.

Gas-fueled power plants are the second-largest source of
electricity in the U.S. behind coal, according to the Energy
Information Administration. Nuclear reactors, the third-largest
source, provide about 20 percent of U.S. power.

Market Share

Gas accounted for 24 percent of power supply last year, a
three-percentage-point gain in market share in two years, the
U.S. said in a March 11 report.

Calpine Corp., owner of the largest group of U.S. gas-fueled plants, stands to gain as nuclear delays and higher coal
prices drive up demand for its output in Texas, California and
the U.S. Southeast, Angie Storozynski, a New York-based analyst
for Macquarie Capital USA Inc., said in an e-mailed message.

New federal air-pollution standards for utilities will
likely lead to the retirement of some coal plants, which also
will drive more demand for gas-fired plants, Storozynski said.

“We expect natural gas to be the fuel of choice for U.S.
power generation going forward,” she said.